Time to awaken to the sleeping giant
Howdy folks! Things are not really that good in the manufacturing sector, and all the promised and overdue policies should be brought into the picture soon to turn things around.
LAST week, the Confederation of Zimbabwe Industries released its 2017 Manufacturing Sector Survey, and from it we can see that industry is still beset by a myriad of challenges.
According to the survey, 69 percent of industrialists decreased their wage bills at a time the cost of living is going up.
Some 23 percent retrenched permanent employees, and 53 percent of firms encountered workplace injuries. Only 25 percent of firms had medical insurance for their non-permanent employees. This at a time when most employees are non-permanent!
Isn’t it a betrayal of the decent work agenda?
Folks, from my perusal of the survey results, I conclude that the manufacturing sector is still a sleeping giant and its present contribution in the grand scheme of things is ridiculous.
While it makes sense that the decline in capacity utilisation to 45,1 percent does not represent subdued output, the increase in output itself is still insignificant and doesn’t yet call for popping champagne bottles.
Come to think of it, after shutting down Zimbabwe’s borders to some imports, output volumes recorded a modest increase of 5,5 percent!
Does the end justify the means here?
Can all the demand that was shifted from foreign products to local ones be satisfied by a mere output increase of 5,5 percent?
Granted, raw material shortages and foreign exchange availability challenges played a role in suppressing production.
But while it is argued that capacity utilisation somehow declined on account of over-investment in machinery, the equipment age profile, however, shows that only 3,7 percent of equipment is less than a year old – which may not really point to over-investment over the past year, unless we now have monopolies throughout the different sub-sectors of industry.
The majority of equipment is very old and one wonders what its net book value is.
In light of the above, the efficacy of protection should be vigorously interrogated with a view to seeing how to make it work better and enhance capacity and output dynamically and sustainably.
Right now, thanks to protection, local industries have to first meet local demand before also thinking about venturing into exports that are needed to generate foreign currency.
And their need for foreign exchange, imported raw materials and retooling has increased to meet surging demand.
What can be observed is the need for a departure from piecemeal policies.
Right now, Government is ducking and diving on aligning the indigenisation law with clarifications made by the Head of State a long time ago.
The Local Content Policy that was supposed to be implemented starting mid-year is still to see the light of day despite it having been included in the 100-Day Rapid Results Initiative.
Now we hear that the Value-Addition and Beneficiation Cluster, which is running with the issue, is just 30 percent on target.
So Government needs to play its part to the fullest, while industry should also increase its efforts.
The question that remains at the back of the mind is: what will happen if protection is lifted today? Are local players competitive enough to withstand competition when protection floodgates are lifted?
While industrialists are banking on increasing exports as a means to deal with cash shortages, as highlighted in the survey, exports are only a piece of the puzzle.
For starters, manufactured exports are largely concentrated regionally, which calls for more diversification into other attractive export markets.
While South Africa might be regarded as a saviour, it should be noted that the current trade structure with our counterpart across the Limpopo also poses a risk given the high dependence levels on that country for just about everything we need.
A classic instance is that of LP gas shortages which we experienced a couple of years ago due to an export cut by a South Africa that was struggling to meet domestic demand.
It can also be observed from the survey results that raw materials sourced locally decreased from 84 percent in 2016 to 64 percent in 2017.
In other words, it implies that the percentage of raw materials sourced abroad has increased from 16 percent in 2016 to 36 percent, which obviously worsens pressure on the elusive foreign exchange. This should be addressed. There is need to conduct a raw materials assessment and come up with policies that ensure the domestic market meets all that can be provided locally without resorting to importation.
Import-substitution of finished goods should be complemented with import-substitution of raw materials.
In terms of pricing, one can notice that most manufacturers are still using the archaic mark-up-over-cost pricing model; actually 65 percent of them.
Surely, for companies that are targeting to be competitive on the global market, there is need to also adopt competitive pricing models.
Mark-up-over-cost pricing simply says if the cost of making bread is, say, US$2, then apply a mark-up of 20 percent to come up with a final price of US$2,40.
But who will buy bread at that price?
This sort of pricing philosophy does not really compel the producer to pay attention to cost rationalisation and efficiency.
It is also disappointing to note that there is a huge disconnect between local industries and universities.
This is a time when innovation and creativity are needed the most, yet the levels of collaboration with local universities are still deplorable.
Only two percent collaborate extensively with local universities, while nine percent collaborate. So, where do the ideas come from?
These two sectors should really enhance their collaboration to improve industrial production and productivity.
The research also unveils the hypocrisy of many industrialists when it comes to sustainable energy use and conservation.
From the survey, the majority of industrialists cited promotion of affordable alternative sources of energy as one of the major solutions to the power situation.
Yet, 81 percent of them use generators as their back-up power supply.
Apart from being expensive, generators also use fuel imported from outside the country, adding to the already high import bill.
Again, virtually all of them, 96 percent to be specific, use electricity as their primary energy source.
This at a time when we have electricity deficits, with the country importing power from other regional countries.
This should signal CZI to exhort its members to utilise other renewable energy sources such as solar, among others.